| Calabrese Bakeries, Inc. v Rockland Bakery, Inc. |
| 2013 NY Slip Op 00367 [102 AD3d 1033] |
| January 24, 2013 |
| Appellate Division, Third Department |
| Calabrese Bakeries, Inc., Individually and in the Name ofand for the Benefit of B.M. Baking Company, Inc., et al., Appellants-Respondents, vRockland Bakery, Inc., et al., Respondents-Appellants. |
—[*1] Higgins, Roberts, Beyerl & Coan, PC, Niskayuna (Michael E. Basile of counsel), forRockland Bakery, Inc. and others, respondents-appellants. Gleason, Dunn, Walsh & O'Shea, Albany (Ronald G. Dunn of counsel), for Clark J.Seeley and others, respondents-appellants.
Egan Jr., J. Cross appeals from an order of the Supreme Court (Kramer, J.), enteredOctober 3, 2011 in Schenectady County, which, among other things, partially granteddefendants' motions for summary judgment dismissing the complaint.
Plaintiff Joseph A. Melino is the president of plaintiff Calabrese Bakeries, Inc., awholesale and retail bakery distributor. Calabrese began as a small retail operation inRensselaer County that sold baked goods provided by defendant Rockland Bakery, Inc.In June 2002, Melino and Rockland's president, defendant Ignazio "Salvatore" Battaglia,entered into a contract, pursuant to the terms of which the parties agreed to form a newcorporation, plaintiff B.M. Baking Company, Inc., which would be headquartered onFuller Road in Albany County. Although poorly drafted, it appears from the contract thatMelino and Battaglia envisioned that [*2]B.M. Bakingwould act as the exclusive wholesale and retail distributor of Rockland's baked goodswithin a defined geographic area. Upon payment of the buy-in fee by Rockland,Calabrese and Rockland each would have a 50% ownership interest in thecorporation.[FN1]
Approximately six months after the execution of this agreement, Melino wasincarcerated on unrelated charges, and defendant Clark J. Seeley apparently stepped in tomanage B.M. Baking's operations.[FN2]Shortly thereafter, according to Melino, Seeley set up various corporate entities,including defendant WTF Bakery, Inc. and defendant Portside Distributors, Inc.,appropriated moneys and assets otherwise belonging to Calabrese and/or B.M.Baking[FN3]and, in conjunction therewith, effectively terminated the business relationship forged byCalabrese and Rockland. In early 2004, Rockland petitioned for judicial dissolution ofB.M. Baking pursuant to Business Corporation Law § 1104 and, when B.M.Baking failed to appear or answer, the petition was granted. Subsequent efforts tosuspend or annul the dissolution proved unsuccessful (see Matter of Rockland Bakery,Inc. v B.M. Baking Co., Inc., 83 AD3d 1080 [2d Dept 2011]; Matter of Calabrese Bakeries, Inc.v Rockland Bakery, Inc., 83 AD3d 1060 [2d Dept 2011]).
After Melino's release from prison, plaintiffs commenced this action setting forth 14causes of action[FN4]sounding in, among other things, fraudulent inducement, breach of contract, breach offiduciary duty and prima facie tort. Following joinder of issue and discovery, Battaglia,Rockland and defendant Rockland Bakery NY, Inc. (hereinafter collectively referred toas the Rockland defendants) moved for summary judgment dismissing the complaint, andSeeley, WTF and Portside, together with defendants C&C Specialties, Inc. and JoslenDevelopers, LLC., separately moved for similar relief. Plaintiffs opposed the respectivemotions contending, among other things, that they should be held in abeyance pendingfurther discovery and the Second Department's resolution of the then-pending appealsregarding the judicial dissolution. Supreme Court denied defendants' motions as to thefirst, second and third causes of action alleging fraudulent inducement, breach of contractand conversion, but granted the motions as to the balance of the complaint, concludingthat the remaining claims were either meritless or duplicative. Additionally, SupremeCourt held that plaintiffs' claims for damages would be limited to those incurred prior tothe dissolution of B.M. Baking in March 2004. These cross [*3]appeals ensued.[FN5]
Initially, to the extent that plaintiffs take issue with Supreme Court's resolution oftheir January 2008 motion to compel discovery, we note that plaintiffs, by their ownadmission, did not perfect their appeal from Supreme Court's resulting order.Additionally, "an appeal from . . . an intermediate order [such as the one atissue here] does not bring up for review prior nonfinal orders" (Abasciano v Dandrea, 83AD3d 1542, 1543 [2011], citing Baker v Shepard, 276 AD2d 873, 874[2000]). Accordingly, plaintiffs' argument on this point is not properly before us.
Plaintiffs' related claim—that Supreme Court erred in failing to holddefendants' motions for summary judgment in abeyance pending furtherdiscovery—is without merit. While it is true that a motion for summary judgmentmay be "denied as premature when the nonmoving party has not been given reasonabletime and opportunity to conduct disclosure relative to pertinent evidence that is withinthe exclusive knowledge of the movant or a codefendant" (Metichecchia v Palmeri, 23AD3d 894, 895 [2005]), plaintiffs had ample time and opportunity to do so here (see Judd v Vilardo, 57 AD3d1127, 1131 [2008]). Moreover, "a trial court has broad discretionary power incontrolling discovery and disclosure, and only a clear abuse of discretion will promptappellate action" (Premo vRosa, 93 AD3d 919, 920 [2012] [internal quotation marks and citationsomitted]). We discern no abuse of that discretion in this matter.
Nor can we say that Supreme Court erred in concluding that plaintiffs' damages, ifany, must be limited to those incurred prior to the March 19, 2004 judicial dissolution ofB.M. Baking.[FN6]Contrary to plaintiffs' assertions, the underlying contract does not evidence the parties'intent to create a joint venture between Calabrese and Rockland "in which the corporateentity, [i.e., B.M. Baking], was a mere conduit" for the distribution of goods (Rinaldi v Casale, 13 AD3d603, 605 [2004]), nor does it demonstrate that Calabrese and Rockland retainedcertain rights that were "independent of and extrinsic to the corporate entity" formedthereunder (Sagamore Corp. v Diamond W. Energy Corp., 806 F2d 373, 379[1986] [internal quotation marks and citation omitted]). As such, this matter falls withinthe general rule that where the parties chart a course "to conduct business through acorporation, . . . they are not at one and the same time joint venturers andstockholders, fiduciaries and nonfiduciaries, personally liable and not personally liable"(Weisman v Awnair Corp. of Am., 3 NY2d 444, 449 [1957]; accord D'Orazio v Mainetti, 24AD3d 915, 917 [2005]; seegenerally Lombard & Co., Inc. v De La Roche, 46 AD3d 393, 393-394 [2007],lv dismissed 11 NY3d 782 [2008]; compare Sagamore Corp. v Diamond W.Energy Corp., 806 F2d at 379). Accordingly, the limitation imposed by SupremeCourt will not be disturbed.[*4]
We now turn to the specific causes of action setforth in plaintiffs' complaint. The first cause of action sounds in fraudulent inducementand essentially is based upon a misrepresentation allegedly made by Battaglia and/orRockland "that certain corporate, institutional and government[al] entities. . . would become customers of [B.M. Baking]." While it is true that "amisrepresentation premised directly on the same actions giving rise to a breach ofcontract does not give rise to a separate cause of action for fraud" (Kosowsky v Willard Mtn.,Inc., 90 AD3d 1127, 1129 [2011]), we are satisfied that the conduct alleged inplaintiffs' first cause of action "is sufficiently discrete from that underlying [plaintiffs']breach of contract claim to state a separate cause of action" (id. at 1129). More tothe point, in view of the conflicting proof contained in the voluminous record before us,including Melino's examination before trial testimony and Battaglia's affidavits, we agreewith Supreme Court that questions of fact preclude an award of summary judgment as tothis cause of action.
With respect to plaintiffs' second cause of action, wherein plaintiffs allege thatBattaglia and/or Rockland breached the underlying contract by violating the exclusivedistribution clause contained therein and charging B.M. Baking "more than the lowestwholesale price charged to other wholesale customers," the Rockland defendants argueonly that Supreme Court should have dismissed this claim due to plaintiffs' inability toprove damages. We disagree. In light of Melino's incarceration, which necessarily limitedhis knowledge of B.M. Baking's daily operations and his access to relevant corporaterecords, as well as the limited business records (invoices, receipts, tax returns, etc.)apparently still remaining, plaintiffs indeed may have a difficult time proving thedamages alleged. However, Supreme Court correctly concluded that—in view ofthe conflicting documentary evidence and the credibility issues raised by Melino andBattaglia's disparate accounts of what actually transpired here—resolution of thisparticular cause of action must await a trial.
We reach a similar conclusion regarding plaintiffs' third cause of action alleging,among other things, that Seeley and the Rockland defendants converted andmisappropriated "assets, funds, customer accounts and business opportunit[ies]"otherwise properly belonging to plaintiffs (see generally Salatino v Salatino, 64 AD3d 923, 925[2009], lv denied 13 NY3d 710 [2009] [elements of conversion]). Again, whileplaintiffs indeed may find it difficult to specifically identify, trace and document theproperty allegedly appropriated, the confusing and conflicting proof in the recordprecludes an award of summary judgment as to this cause of action.
Plaintiffs' remaining claims—with one exception—do not warrantextended discussion. Plaintiffs' fourth cause of action is either a rehash of the previouslystated conversion claim or an attempt to collaterally attack the long-resolved judicialdissolution of B.M. Baking, and plaintiffs' fifth cause of action seeking an accounting,together with their sixth cause of action (fraudulent representation), eighth cause ofaction (conversion), tenth causes of action (violation of Business Corporation Law§ 720 and breach of fiduciary duty) and eleventh cause of action (breach ofcontract) are, as Supreme Court appropriately concluded, duplicative of other causes ofaction contained in the complaint. Plaintiffs also failed to allege—much lessdemonstrate—the elements necessary to either impose a constructive trust (ninthcause of action) (see generallyEnzien v Enzien, 96 AD3d 1136, 1137 [2012]) or maintain a cause of action forprima facie tort (twelfth cause of action) (see generally Cusimano v United Health Servs. Hosps., Inc., 91AD3d 1149, 1152-1153 [2012], lv denied 19 NY3d 801 [2012]). Notably, asto this latter cause of action, plaintiffs failed to allege or establish that defendants' solemotivation for the offending conduct was malevolence (see White v Ivy, 63 AD3d1236, 1239 [2009]). Finally, plaintiffs' claim for punitive damages (thirteenth causeof action), which cannot be maintained as an [*5]independent cause of action (see Brandle Meadows, LLC vBette, 84 AD3d 1579, 1579 n [2011]), must fail. "Punitive damages are notrecoverable for an ordinary breach of contract as their purpose is not to remedy privatewrongs but to vindicate public rights" (Rocanova v Equitable Life Assur. Socy. ofU.S., 83 NY2d 603, 613 [1994] [citation omitted]).
We do, however, find merit to plaintiffs' claim that Supreme Court erred in grantingsummary judgment dismissing their seventh cause of action for breach of fiduciaryduty.[FN7]The case law makes clear that "officers and directors of a corporation stand in a fiduciaryrelationship to the corporation and owe their undivided and unqualified loyalty to thecorporation" (Howard v Carr, 222 AD2d 843, 845 [1995]; accord Busino vMeachem, 270 AD2d 606, 609 [2000]; Blank v Blank, 256 AD2d 688,694-695 [1998]). Hence, officers and directors are not "permitted to profit personally atthe expense of the corporation[, and] . . . conduct that cripples or injures thecorporation is impermissible" (Howard v Carr, 222 AD2d at 845 [citationomitted]). Similarly, "an employee is prohibited from acting in any manner inconsistentwith his or her employment and must exercise good faith and loyalty in performing his orher duties, and may not use his or her principal's time, facilities or proprietary secrets tobuild [a] competing business" (Mega Group v Halton, 290 AD2d 673, 675[2002] [internal quotation marks and citations omitted]).
Although Battaglia averred that he "did not appear for any meeting wherein directorsor officers [of B.M. Baking] were elected" and Seeley, in turn, asserted that he was notan employee of either Calabrese or B.M. Baking, the documentary evidence tendered byplaintiffs—including corporate resolutions/minutes naming Battaglia as a directorand vice- president of B.M. Baking and two documents wherein Seeley identifiedhimself as the manager of "Calabrese Rockland Baker[y]"—was sufficient to raisea question of fact on this point. Accordingly, Supreme Court's order must be modified tothe extent of denying defendants' motions for summary judgment dismissing plaintiffs'seventh cause of action, thereby permitting plaintiffs to go forward with respect to theirbreach of fiduciary duty claim against Battaglia and Seeley. The parties' remainingcontentions, to the extent not specifically addressed, have been examined and found to belacking in merit.
Peters, P.J., Lahtinen and Garry, JJ., concur. Ordered that the order is modified, onthe law, without costs, by reversing so much thereof as granted defendants' motions forsummary judgment dismissing the seventh cause of action; motions denied to that extent;and, as so modified, affirmed.
Footnote 1: The contract providedthat Calabrese and B.M. Baking would accept "product for payment" until theagreed-upon sum ($175,000) was paid in full.
Footnote 2: The parties have widelydivergent accounts as to Battaglia's awareness of Melino's legal troubles prior to theexecution of their agreement and/or the circumstances under which Seeley assumed hismanagement responsibilities.
Footnote 3: According to Melino,Rockland had not paid the buy-in fee at this point; therefore, to Melino's analysis,Calabrese retained a 100% interest in B.M. Baking.
Footnote 4: Two of the causes ofaction are each mistakenly denominated as the tenth cause of action.
Footnote 5: Plaintiffs' subsequentmotion for a stay pending appeal was denied by this Court.
Footnote 6: A corporation's legalexistence terminates upon dissolution and, as such, it "is prohibited from carrying on newbusiness and does not enjoy the right to bring suit in the courts of this state, except in thelimited respects specifically permitted by statute" (Moran Enters., Inc. v Hurst, 66 AD3d 972, 975 [2009][citation omitted]; see Business Corporation Law §§ 1005, 1006).
Footnote 7: The complaint, to ourreading, alleges that both Battaglia and Seeley breached their fiduciary duty to B.M.Baking. Hence, to the extent that Supreme Court's decision and resulting order suggestthat this claim was brought against Battaglia alone, we disagree.